Buying a first home became more affordable in most parts of the country last month thanks to a fall in lower quartile selling prices in most regions, but significantly less affordable in Auckland, where the lower quartile price surged to a record high, according to the interest.co.nz First Home Buyer's Affordability Report.
The report shows that housing remains affordable for typical first home buyers in all regions of the country except Auckland, where affordability worsened considerably due to rapidly rising prices.
In Auckland the REINZ's lower quartile selling price was $616,500 in May, compared to $584,500 in April and $502,100 in May last year.
The report estimates that would have pushed up the mortgage repayments on a lower quartile-priced Auckland property purchased by typical first home buyers to $821.83 a week, which would eat up 54% of their after tax pay, up from 50.8% in April, 45.8% in May last year and 38.1% in May 2013, when the same property would still have been considered affordable.
That means housing is likely to be becoming severely unaffordable for first home buyers in Auckland because as well as mortgage payments, they will be faced with other property-related expenses such as rates, insurance and maintenance costs, which could severely impact their finances.
And it could leave them facing even more severe financial difficulties when interest rates eventually start to rise again, which they inevitably will do at some stage.
What 'affordable' is
The report considers housing to be affordable when mortgage payments are less than 40% of take home pay.
The income measures used in the report for typical first home buyers are the regional pay figures for working couples aged 25-29, according to the LEEDS (Linked employer-employee data survey) data from Statistics NZ.
Mortgage repayments are calculated using the average of the major banks two year fixed rates on a 25 year mortgage.
By those measures, housing is affordable for first home buyers in every region of the country except Auckland.
The cheapest place for first home buyers remains Southland where the lower quartile price was just $139,400 in May, followed by Manawatu/Wanganui at $163,100, Otago $198,300, Hawkes Bay $216,700, Taranaki $234,500, Northland $258,200, Waikato/Bay of Plenty $265,500, Nelson/Marlborough $295,700, Wellington $325,900. Canterbury $342,000, Central Otago-Lakes $388,900 and Auckland $616,500 (See table below for lower quartile price movements in all regions over the last two years).
That means the mortgage on a lower quartile priced home in Southland would take up just 11.2% of a typical first home buying couple's take home pay, while in the most expensive region outside of Auckland - Central Otago-Lakes - the mortgage on a lower quartile priced home would eat up 35.4% of their after tax income.
In the Wellington region a lower quartile home would take up 26% of a first home buying couple's take home pay and in Canterbury it would be 28.4%.
Last month the REINZ's lower quartile selling price declined in seven regions (Northland, Hawkes Bay, Manawatu/Whanganui, Nelson/Marlborough, Canterbury, Central Otago/Lakes, Otago) and rose in five (Auckland, Waikato/Bay Of Plenty, Taranaki, Wellington, Southland).
The Auckland problem child
But Auckland is the problem child because the lower quartile selling price in the region has risen by $170,100 (38.2%) in the two years since May 2013.
By comparison, the lower quartile selling price in the Wellington region has risen by $12,900 (4.1%) over the same period and in Canterbury it has risen by $41,000 (13.6%).
The strong price rises for properties in Auckland doesn't just mean that first home buyers could have trouble making the mortgage payments on a lower quartile priced house, they would also likely struggle to save a reasonable deposit.
The interest.co.nz First Home Buyer's Affordability Report also calculates how much of a deposit a first home buying couple would have saved if they squirreled away 20% of their after-tax pay for four years and earned interest on this at the average 90 day deposit rate.
By that measure, the first home buying couple in Auckland would have saved $67,554 after four years, which would only be an 11% deposit for a home at the region's lower quartile May selling price of $616,500.
This means the first home buying couple would have to compete for the limited supply of home loans banks are able to make available to people with less than a 20% deposit, which also means they would probably not be eligible for the special interest rate deals that many banks offer and may end paying a higher interest rate than borrowers with a larger deposit.
By comparison, a typical first home buying couple in Wellington (where pay rates are slightly higher than Auckland) would have saved $69,179 after four years, which would provide a 21.2% deposit on a home at the region's lower quartile price of $325,900.
In Canterbury, the typical first home buyers would have saved $65,722 after four years which would provide a 19.2% deposit on a home at the region's lower quartile price of $342,000.
Buying a first home has never been easy, but in every region except Auckland, getting on to the first rung of the property ladder should be manageable for aspiring first home buyers provided they are working and develop a regular savings habit.
However in Auckland, that first home is becoming increasingly out of reach for many.
And with immigration fuelled population growth in Auckland outpacing the supply of new homes and prices continuing to rise significantly faster than incomes, the outlook for first home buyers in the region is becoming increasingly difficult.
| May 2013 | May 2014 | May 2015 | |
| Northland | $246,700 | $252,100 | $258,200 |
| Auckland | $446,400 | $502,100 | $616,500 |
| Waikato/Bay of Plenty | $245,300 | $253,700 | $265,500 |
| Hawkes Bay | $211,700 | $214,400 | $216,700 |
| Manawatu/Whanganui | $184,600 | $172,000 | $163,100 |
| Taranaki | $238,400 | $221,700 | $234,500 |
| Wellington | $313,000 | $323,000 | $325,900 |
| Nelson/Marlborough | $295,500 | $284,800 | $295,700 |
| Canterbury/Westland | $301,000 | $335,800 | $342,000 |
| Central Otago/Lakes | $358,200 | $360,400 | $388,900 |
| Otago | $182,200 | $188,400 | $198,300 |
| Southland | $145,000 | $132,300 | $139,400 |
| All NZ | $275,000 | $287,000 | $305,000 |
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